Solutions to Chapter 19 Exercises .ca

S3. (a) If you offer $3,000, the current owner sells only if the car’s true value to him is less than $3,000. Since all values between $1,000 and $3,000 are equally likely, a car that you’ll buy has an expected value of $2,000. On average, such a car will be worth (4/3) ( $2,000 = $2,667 to you. If you offer $3,000, therefore, you can expect the transaction to cause you to lose $333 in ... ................
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